Basics of Supply Chain Management

Introduction to Supply Chain Management

Session 1

APICS Certified in Production and Inventory Management (CPIM)

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Course Objectives

Provide a review of supply chain management from a

manufacturing, planning, and control perspective.
Provide a basis for further study leading to APICS CPIM
certification.

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Basics of Supply Chain Management
1. 2. 3. 4. 5.
Capacity
Introduction Management
Material
to Supply Demand Master and
Requirements
Chain Management Planning Production
Planning
Management Activity
Control

Aggregate Purchasing Lean and

Item Inventory Theory of
Inventory and Physical Quality
Management Constraints
Management Distribution Systems

6. 7. 8. 9. 10.

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Learning Objectives
Introduction to Manufacturing
– Explain the significance of the United Nations (UN) Global Compact.
– Describe the components of the manufacturing business model.
– Describe the impact of four significant aspects of the business
environment on manufacturing.

Manufacturing Environments and Process Choices

– Explain five manufacturing environments and their determinants.
– Explain the differences among the three process choices.

The Manufacturing Supply Chain

– Differentiate between internal and external supply chains.
– Differentiate between traditional and cross-functional supply chains.
– Explain common supply chain conflicts and how to resolve them.
– Explain the relationship between strategic, tactical, and operational
performance measures.
– Explain the role of materials management.
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Learning Objectives (cont.)
Manufacturing Planning and Control
– Identify five objectives of manufacturing.
– Describe the concepts of priority and capacity.
– Present an overview of the manufacturing planning and control (MPC)
hierarchy.
– Describe the four steps in the evolution of MRP to ERP.

The Impact of New Systems and Philosophies

– Present a high-level description of lean, total quality management
(TQM), six sigma, and the theory of constraints (TOC).

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Introduction to Supply Chain Management
Session 1

Introduction to
Manufacturing

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Role of Manufacturing
Adding value creates wealth

Raw material
Product

Value to the customer

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United Nations Global Compact

Voluntary strategic policy initiative for businesses

Alignment of business operations with principles in four
areas:
– human rights
– labor practices
– environment
– anti-corruption

Adoption of UN Global Compact Management Model

Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011

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Ten Principles

Human 1 – Support and protect internationally proclaimed human rights.

rights 2 – Ensure non-complicity in human rights abuses.

3 – Uphold freedom of association and right to collective bargaining.

Labor 4 – Eliminate forced and compulsory labor.

practices 5 – Abolish child labor.
6 – Eliminate discrimination in employment and occupation.

7 – Support a cautionary approach to environmental challenges.

Environment 8 – Promote greater environmental responsibility.
9 – Encourage the development and diffusion of environmentally
friendly technologies.

Anti-corruption 10 – Work against corruption in all of its forms including

extortion and bribery.

Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011

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UN Global Compact Management Model
Commit
Leadership commitment to mainstream Global
Compact principles.

Communicate Assess
Communicate progress and Assess risks, opportunities, and
strategies; engage stakeholders. impacts.

Measure Define
Measure and monitor impacts Define goals, strategies, and
and progress toward goals. policies.

Implement
Implement strategies and policies across
the company and value chain.

Source: United Nations Global Compact Management Model: Framework for Implementation, June 2010
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Manufacturing Business Model

Defining products and customers

Designing products and processes
Managing material flow
Providing customer service and support

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Customers and Products
Product definition Customer definition
Positioning Types of customers:
Breadth of product line • industrial
Price • consumer
Quality • institutional
Brand name or generic • government
Design Market segmentation
Packaging Sales channels
Returns policy Market share/profitability

Choice of manufacturing environment

Product (ETO, MTO, ATO, MTS)
design Choice of manufacturing process
(project, intermittent, repetitive flow, continuous flow)

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Designing Products and Processes

Cost
effectiveness
Meet
customer Quality
needs

DESIGN

Accommodate
planning Efficiency
parameters

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Managing Material Flow
Material
acquisition

Manufacturing

Distribution

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Providing Customer Service and Support

Understanding and meeting customer wants and needs

Two-way communication
Working with customers to solve problems

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Global Environment

Global competition
Economic, government, and
regulatory influences
Customer expectations
Corporate social responsibility

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Customer Expectations

Characteristics that provide value to the customer:

Cost (price)
Quality
Speed (order lead time)
Dependability
Flexibility (product and volume)

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Corporate Social Responsibility and
Sustainability

Corporate social responsibility Sustainability

Human rights
Responsible economic
Labor practices growth that benefits all
Environment segments of society in
Anti-corruption an equitable manner

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Introduction to Supply Chain Management
Session 1

Manufacturing
Environments and
Process Choices

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Manufacturing Environments

Engineer-to-order (ETO)
Make-to-order (MTO)
Assemble-to-order (ATO)
Make-to-stock (MTS)
Mass customization

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Determinants of Manufacturing Environments

Lead time expectations

Product design input from customers
Product volume and variety
Product life cycle

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Lead Time and Manufacturing Environments

ETO delivery lead time Engineer-to-

order
Design Purchase Manufacture Assemble Ship

MTO delivery lead time

Make-to-order
Inventory Manufacture Assemble Ship

ATO delivery lead time Assemble-to-

order
Manufacture Inventory Assemble Ship
MTS delivery
lead time Make-to-stock
Manufacture Assemble Inventory Ship

Source: Arnold et al., Introduction to Materials Management , 7th ed.

Reprinted by Permission of Pearson Education

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Volume and Variety Relationships

High
Engineer-to-order
Mass
customization
Product variety

Make-to-order

Assemble-to-order

Make-to-stock

Low High
Product volume

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Product Life Cycle

Units
sold Time

Introduction Growth Maturity Decline Phase-out

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Product Life Cycle and Manufacturing
Environments

Units
sold Time

Introduction Growth Maturity Decline Phase-out

ETO

MTO

ATO

MTS

Mass customization
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Choice of Processes and Layouts

Intermittent
Flow
– repetitive/line
– continuous

Project

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Intermittent Manufacturing

Source: Arnold et al., Introduction to Materials Management , 7th ed.

Reprinted by Permission of Pearson Education

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Intermittent Manufacturing Characteristics

Intermittent lot or batch production

Work moves only to required stations
Many different parts processed at workstations
General-purpose machinery
Relatively easy to change product or volume
Complex and expensive production and inventory control
High WIP inventory levels; long lead time

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Intermittent Manufacturing Layout

Intermittent manufacturing layout is called process

layout.
It also is called functional or job shop layout.
Equipment and operations are grouped together by
functional specialty.
There are similar types of skills and equipment in each
department.
Volume is not high enough to justify assembly line.

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Flow Manufacturing

Workstations are in the sequence needed to make the

product.
Work flows at a nearly constant rate.
There is little WIP inventory.

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Flow Manufacturing Characteristics

Layout is called product layout.

There are fixed routings and dedicated machinery.
The process is capital intensive.
There are two types of flow: repetitive (line) and continuous.
Repetitive produces discrete units, such as cell phones and
automobiles.
Continuous produces non-discrete products, such as liquids.
There is a limited range of similar products.
High product volumes occur.

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Advantages of Product Layout

Little WIP inventory

Short throughput and manufacturing lead times
Lower unit cost

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Project Manufacturing

Used for large, complex projects

Project remains in one location for assembly
Product made at one site
Avoids cost of moving the product

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Problem 1.1
Product Layout Versus Process Layout

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Problem 1.1 Solution
Product Layout Versus Process Layout

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Introduction to Supply Chain Management
Session 1

The Manufacturing
Supply Chain

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Supply Chain Management Definitions

Supply chain: The global network used to deliver

products and services from raw materials to end
customers through an engineered flow of information,
physical distribution, and cash
Supply chain management: The design, planning,
execution, control, and monitoring of supply chain
activities with the objective of creating net value, building
a competitive infrastructure, leveraging worldwide
logistics, synchronizing supply with demand, and
measuring performance globally
─APICS Dictionary

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Basic Supply Chain: External
External supply chain from a manufacturer’s perspective

Dominant flow of goods and services

Returns and reverse logistics

Suppliers Manufacturer Distributors Retailers

Consumers

Dominant flow of demand and design information

Dominant flow of cash

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Traditional Internal Supply Chain View

Raw materials

Purchasing Production Distribution

Customers
Lowest purchase High utilization percent Full truckload
price quantities
Long runs (minimal
Inventory buffers changeovers) Best shipping rate
Low unit costs Safety stocks
Safety stocks

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Cross-Functional Supply Chain View
Supply chain processes

Manage customer orders and reverse logistics

Develop Perform
Manage Produce Manage
products marketing
procurement products distribution
and services and sales

Key support processes:

Manage finance

Manage human resources

 The value chain consists of the value-adding processes that enable a

company to take its products from conception to market.
 The internal supply chain is a subset of the value chain.
 Support processes are important but are not considered primary value
chain processes.
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Conflicts in Traditional Supply Systems

Marketing Operations Finance

Traditional Increase revenue Reduce Increase profit and
objective and satisfy manufacturing cost cash flow, reduce
customers investment

1 4 7
Customer service

2 5 8
Production efficiency

3 6 9
Inventory investment

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Performance Measures

Key performance indicators (KPI)

Strategic

Tactical

Operational

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Balanced Scorecard

“Balanced” to show KPIs from the

– customer perspective
– business process perspective
– financial perspective
– innovation and learning perspective.

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Role of Materials Management

Demand Resources

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Introduction to Supply Chain Management
Session 1

Manufacturing
Planning and Control
(MPC)

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Objectives of Manufacturing

The right products

Of the right quality
In the right quantities
At the right time
At minimum cost and at the right price

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Why Plan?

To satisfy customer demand and ensure the availability

of the following resources:
– material
– capacity

Demand Resources

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A Good Planning and Control System

What must
we get
and
when?

These are questions of priority and capacity.

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Manufacturing Planning and Control

Strategic and business planning

Sales and Resource

Capacity planning
operations
Priority planning

planning (RP)
planning
Rough-cut
MPC activities

Master scheduling capacity planning

(RCCP)

Material Capacity
requirements requirements
planning (MRP) planning (CRP)

Execution
Execution

Input/output
Production activity control
control (PAC)
Order
sequencing

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Introduction to Supply Chain Management
Session 1

From MRP to ERP

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Evolution from MRP to ERP

MRP
MRP closed MRP II ERP
loop

MRP processor
Closed-loop feedback
Best practice processes
Common database
Sales and operations
planning
Total cross-functional
software process integration

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Introduction to Supply Chain Management
Session 1

The Impact of
New Systems and
Philosophies

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Impact of New Systems

TQM
Lean TOC
Six sigma
Reduced lead times
Reduced inventory levels
Improved worker productivity
Improved product quality
Cost reductions
Increased profitability

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Introduction to Supply Chain Management
Session 1

Wrap-Up and
Homework

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Learning Objectives
Introduction to Manufacturing
– Explain the significance of the UN Global Compact.
– Describe the components of the manufacturing business model.
– Describe the impact of four significant aspects of the business
environment on manufacturing.

Manufacturing Environments and Process Choices

– Explain five manufacturing environments and their determinants.
– Explain the differences among the three process choices.

The Manufacturing Supply Chain

– Differentiate between internal and external supply chains.
– Differentiate between traditional and cross-functional supply chains.
– Explain common supply chain conflicts and how to resolve them.
– Explain the relationship between strategic, tactical, and operational
performance measures.
– Explain the role of materials management.
1  55 © APICS CONFIDENTIAL AND PROPRIETARY
Learning Objectives (cont.)
Manufacturing Planning and Control
– Identify five objectives of manufacturing.
– Describe the concepts of priority and capacity.
– Present an overview of the MPC hierarchy.
– Describe the four steps in the evolution of MRP to ERP.

The Impact of New Systems and Philosophies

– Present a high-level description of lean, TQM, six sigma, and TOC.

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Vocabulary Check

Objective: Reinforce terminology used in this session.

Complete the activity in class, individually or in pairs, or
as homework.

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Vocabulary Check Solution

1. f 7. g
2. i 8. a
3. l 9. j
4. k 10. c
5. d 11. e
6. h 12. b

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